What exactly is Segwit? Is it genuinely possible for Bitcoin to scale to the point of mainstream adoption? What’s more, how does it work?
What is Segwit?
Segwit is a Bitcoin network update that went live in August of 2017. Developer Pieter Wiulle initially mentioned it in December 2015 at the Scaling Bitcoin conference. This intends to address several concerns, including Bitcoin’s scalability.
Bitcoin transactions in a nutshell
Bitcoin transactions are recorded on a Blockchain, an immutable ledger on which transactions are grouped into blocks and linked one after the other to establish their order.
Every 10 minutes, a new block is constructed. Furthermore, the Bitcoin protocol restricts a block’s size to 1MB, limiting a Bitcoin block to about 2700 transactions on common.
When a large number of users try to transmit Bitcoins at the same time, the line of transactions waiting to enter the blockchain becomes longer and longer…
While Visa can perform 1,700 transactions per second, Bitcoin can only process 4, insufficient for broad adoption. Therefore, Bitcoin has to find a means to enhance its transaction throughput before it can genuinely be used globally.
Bitcoin’s malleability issue
Transaction malleability is another issue that Segwit solves. Every Bitcoin transaction has three parts:
- The sender (also known as input).
- The recipient (commonly known as output).
- A digital signature that confirms the sender’s eligibility to deliver the coins.
Bitcoin’s programming, it turns out, permits digital signatures to be changed while a transaction is still being confirmed. The signature can be altered to remain legitimate according to the network if you conduct a mathematical check.
When you apply a hashing algorithm to it, though, you get a different result. Let me give you an example: Let’s pretend the signature value was “3,” but I changed it to “03” or “3+7-7” for the sake of simplicity. While the values are all the same technology, thus it’s still a valid signature. If I hash these different versions, I’ll get different results since hashing is dependent on how the value is written rather than the value itself.
Because the hash represents the transaction’s id on the blockchain, I can effectively modify the id of any unconfirmed transaction, and it will still be legitimate.
Bitcoin’s malleability issue with the example
For a variety of reasons, creating a new transaction id for an existing transaction might be difficult: First, if you want to construct second-layer solutions on top of the Bitcoin network, such as the Lightning Network, you must ensure that no one can change the first layer since the two are interdependent. Second, if you’re spending or accepting unconfirmed payments, changing transaction ids might cause problems.
Let’s look at another scenario: Alice makes a payment to Bob in transaction X, pending confirmation. Bob uses the unverified cash to purchase a product from Charlie via the internet (transaction Y).
While waiting for confirmation on transaction Y, Charlie sends Bob his merchandise. Unfortunately, Bob undertakes some technical fiddling after getting his stuff and maliciously modifies, or malleates, Alice’s payment such that her transaction, X, is confirmed but with a new transaction id.
Because it relies on transaction X’s initial transaction id, which no longer exists, transaction Y, which Bob submitted to Charlie, is now invalid. So, although Charlie has already delivered the products to Bob, he will not get compensated. Bob is a bad guy!
Well, it’s late 2021 now right? you might be aware of metaverse trends going around the crypto world! Want to know to go more deep into Metaverse and NFTs? your destination is here! The MetaVerse & NFTs Combined Going To Explode Crypto…
How Segwit works?
Hence, scalability and malleability are the two most pressing concerns that Segwit solves. However, the company also addresses several other technical issues that do not directly affect end users.
Let’s move more dip to how Segwit truly works now that you know what it is. The term “segregated witness” refers to a planned alteration to the way blocks are organized. Legacy blocks, also known as non-segwit blocks, have a total of 1MB of capacity for all block data, including inputs, outputs, signatures, and extra scripts. On the other hand, are 4MB blocks made up of a basic transaction block plus an extended block.
Legacy tx vs. Segwit tx
Segwit is, contrary to popular belief, a block size increase. The digital signature and additional data known as “the witness” are moved outside of the primary transaction block in Segwit blocks.
The witness data is still sent, but it is now included within the expanded block. As a result, the sender and recipient information is included in the basic transaction block, while the witness data is left blank to save space.
This makes it possible to accommodate more transactions inside the 1MB basic transaction block. The extended block (3MB in size) contains all witness data that isn’t required in the main transaction block.
Segwit advantages
Segwit’s new block structure accomplishes two important goals: First, the digital signature is moved outside the basic transaction block. The transaction id will not be affected if the signature on the transaction is changed.
This effectively resolves the issue of transaction malleability…. you know…Bob!. Second, it reduces the size of the transaction data. Because witness data may account for up to 65% of the transaction size, putting it outside of the basic transaction block enables more transactions to fit within the 1MB block.
I understand what you’re thinking. Why not just make the blocks bigger? Why not just make the blocks 4MB in size? If Segwit is a block size increase? Why all the fuss and controversy about block sizes if the ultimate effect is bigger blocks?
The reason for this is simple: engineers sought to prevent a controversial Bitcoin network hard split. Bitcoin’s protocol stipulates that blocks must not exceed 1MB in size. Thus, engineers needed to devise a method to allow the network to accept both Segwit and Non-Segwit blocks to prevent a hard split.
Under the current protocol, the solution of a 1MB block with an “extension” of an additional 3MB is still valid. Without the extended block!
Soft fork vs. Hard fork
Legacy nodes receive only the 1MB base transaction block. However, they still believe they are valid! Segwit nodes receive the basic and extended blocks (up to 4MB total) and may complete the transaction validation process.
A soft fork is another term for this backwards compatibility. This method is far less hazardous since it does not need node software updates to enable it.
It means that the network will continue to function even if all nodes take years to upgrade. Now let’s look at how miners determine the size of Segwit blocks. Segwit blocks are measured in weight rather than size, as is the case with legacy blocks.
Segwit introduced a new notion called Block Weight, which is determined each transaction. Each transaction has a “weight” calculated as follows: Your transaction weight is equal to the size of your Base Tx (which does not include witness data) *3 + the size of your Full Tx.
Because legacy transactions can’t separate the witness data from the basic transaction, their weight will always be four times the tx. A 1000-byte legacy TX, for example, will weight 1000*3 + 1000 = 4000. Segwit transactions, on the other hand, will be less than four times the size of the tx.
For example, a 1200 byte Segwit transaction including 400 bytes of witness data will weigh (1200 (total transaction size)-400 (witness data size), resulting in a base transaction size of 800, multiplied by 3, equaling 2400, plus the full transaction size of 1200, equaling 3600.
In other words, the smaller, the tx weight, the greater the amount of the witness data. This encourages miners to choose ‘lighter’ Segwit transactions over ‘heavier’ Segwit transactions since they can fit more of them into a base transaction block, potentially increasing the miner’s fee if that block is approved and verified.
While Segwit transactions can build blocks up to 4MB in size in principle, the typical block size with Segwit transactions is roughly 2MB in practice.
Legacy vs. Segwit
Segwit transactions now account for over half of all Bitcoin transactions. However, because legacy transactions are bigger, they need more outstanding network fees in order to be confirmed quickly. Last but not least, Segwit addresses begin with a “3,”. In contrast, traditional addresses start with a “1.” Segwit is being used by a growing number of prominent wallets and exchanges due to its benefits.
Some of the most significant wallet brands that have already incorporated Segwit include Ledger, TREZOR, Electrum, Exodus, and Coinomi. However, it’s worth noting that if you wish to switch from a legacy wallet to a Segwit wallet, you’ll need to establish a new Segwit wallet and transfer all of your coins to its address.
It is not possible to upgrade an existing legacy wallet to function with Segwit. It is the first in a series of changes that will help Bitcoin scale to general use. It’s a significant move that will pave the way for future advancements such as the Lightning Network, Schnorr Signatures, and more.
This will soon become the norm for all Bitcoin transactions as more wallets implement it. That concludes today’s Topic at Cryptocurrencysimple.com. Hopefully, by now, you’ve figured out what Segwit is: a Bitcoin protocol improvement that separates witness data from primary transaction data, resulting in lower transaction sizes, improved transaction security, and more. You could still have some concerns. If you have any, please share them in the comments area below, and I will try my best to answer them 🙂 Till then, Bye, Bitcoin enthusiasts!
Frequently Asked Questions
- Should I use SegWit or legacy?
The original BTC address is known as a legacy address, whereas SegWit is a newer address format with lower fees! I think now u get your answer folks! isn’t it?
2. Is SegWit better?
Yes! Because it isolates the transaction signature from the transaction data, SegWit is superior to the Legacy network. Users who use SegWit addresses will pay a lower cost than those who use Legacy addresses.
3. What are some of the issues that SegWit tried to solve?
It also addresses the issue of scalability, as digital signatures take up around 65% of the space in a transaction. This aims to ignore data tied to a signature by isolating the signature from the input and storing it in a structure near the conclusion of a transaction. For more information and example on this, please go through the article once.
4. Does Blockchain use SegWit?
No, SegWit is a mechanism that increases a blockchain’s block size limit by deleting signature data from bitcoin transactions. When portions of a transaction are eliminated, space or capacity for additional transactions in the chain is created.
5. What is the meaning of SegWit?
Segwit stands for “segregated witness” and is a bitcoin transaction fee reduction mechanism. Segwit pushes all signature data to the end of a bitcoin block, combining the signatures of all transactions. This allows for more transactions to be stored in the same amount of space while retaining the bitcoin blockchain’s security.
